Inari’s RF business poised to be significant contributor

KUALA LUMPUR: Given the rising adoption of 5G smartphones, Inari Amertron Bhd’s (Inari) volume loadings is expected to greatly improve from its radio frequency (RF) business as the group is a close proxy to 5G.

In view of Covid-19 dissipating, MIDF Research expected Inari to record a surge in volume loadings from the RF segment as the group undertakes efforts to diversify its revenue base to sustain earnings growth.

“Operationally, we also expect profit margin to improve continuously arising from various measures to control costs and capital expenditure,” it added.

The research house has revised the group’s profit margin upwards for financial year 2021 (FY21) to FY23, which translated into earnings of Rm335mil to Rm445.6mil respectively given the group’s latest second quarter ended Dec 31 (Q2’21) financial results.

Inari’s net profit jumped more than twofold to Rm90.09mil for Q2’21 from Rm37.48mil a year ago driven by higher revenue in the RF business, and recognition of deferred tax assets.

With the adjustment in the earnings, the research unit is keeping a “buy” call on Inari with a higher target price of RM3.65 based on revised earnings per share of 12 sen for FY22 against forward price-to-earnings ratio (PER) of 30.4 times.

“Our target PER is the group’s +2 standard deviation above the one-year historical average of 27.7 times.

“We view that the higher valuation is in tandem with the anticipation of prolonged upcycle in the semiconductor industry,” it said.

Meanwhile, RHB Research also increased Inari’s earnings growth projection by 16% to 12% for FY21 to FY23 forecasts considering stronger volume loadings and margins for the RF business.

As such, the research house is maintaining a “buy” call on Inari with a higher target price of RM4 as it upgrades the valuation to 40 times PER for FY22 estimate from 37 times due to the 5G thematic play.

“We believe our target PER is fair, as Inari is a prime beneficiary of 5G technology which is poised for mid-term structural growth, coupled with unswaying market interest in the technology sector,” it said.